WSJ Publishes Philip Dublin Article on Repeat Chapter 11 Filings

The Wall Street Journal has published the most recent response by Akin Gump financial restructuring partner Philip Dublin to questions posed in its series “The Examiners,” which focuses on bankruptcy and financial restructuring matters.

In this installment, Dublin answers the question “When a company files for Chapter 11 protection a second, third or even fourth time, who’s to blame?”

Dublin begins by noting, “I posit that there is no one identifiable party (or factor) to blame for repeat corporate bankruptcy filers.” He notes that the need for repeated filings is specific to the company at issue, but that there are “recurring themes in habitual debtor scenarios,” among others:

  • the capital structure with which the company emerges from its first Chapter 11 case
  • risk tolerance of investors
  • competition from healthier
  • new technology
  • regulatory issues.

He notes that unforeseen factors also “can play a significant role in the need for a debtor to refile.”

Dublin concludes by stating that “[W]hile it may be en vogue to blame professionals, vulture investors, aggressive management teams or even a bankruptcy court for permitting a debtor to emerge from Chapter 11 with an over-leveraged balance sheet, the Bankruptcy Code provides that confirmation of a plan should not occur ‘if it is likely to be followed by…the need for further financial reorganization.’ The Code does not prohibit confirmation of a plan if there is a potential that further reorganization may be necessary—although a good rule of thumb is that a bankruptcy court needs to look 18 to 24 months into the future. If possible, every company, its stakeholders and its employees should have the opportunity to survive and thrive following Chapter 11, even if a further restructuring down the road potentially may be required.”